Bunge Bets Big on Brazilian Sugar

By Mark Beresford, Contributing Reporter

RIO DE JANEIRO – American agribusiness company Bunge is more than doubling its sugar cane milling capacity in Brazil, by acquiring sugar and ethanol producer Moema for US$452 million in stock.

The deal gives Bunge full ownership of a Brazilian sugarcane mill and interests in five other mills. If Bunge buys out the remaining shareholders in these other mills, the total value of the transaction could be US$1.48 billion, including about US$710 million in net debt. Bunge, which is the number one supplier of fertilizer to Brazilian farmers, already owns three mills in the country.

The acquisition is the latest step in the consolidation of the Brazilian sugar and ethanol market, as cash-strapped families sell out to powerful foreign groups who are keen to expand in a low cost and rapidly growing market.

Chairman and chief executive Alberto Weisser said in a statement that the acquisition “fulfils Bunge’s strategic goal of building a large-scale, fully integrated business in sugar and bioenergy… it adds significant scale to our current milling operations and enables us to vary production among multiple sugar and ethanol products.”

“For sugar and bioenergy, Brazil is an ideal location in which to invest,” Weisser added. “It has a fast-growing domestic market for ethanol and, because it boasts the world’s lowest cost production, is well positioned to expand its exports of both sugar and ethanol.”

In the first stage of the deal, announced December 24th, Bunge, based in White Plains, New York, will give shareholders in Moema 7.3 million shares in Bunge, including a payment of US$36 million for working capital, and will assume about US$480 million in debt.

The mills are located on the border of Sao Paulo and Minas Gerais states, which are the two largest ethanol markets in Brazil, and they also enjoy good road and rail access to the ports of Santos, Paranagua and Vitoria.

Combined, the cluster of six mills has an annual crushing capacity of 15.4 million metric tons, and can produce two types of sugar, raw and crystal, and two types of ethanol.

Brazil supplies 40 percent of the world sugar market, which Bunge expects to grow by two percent per year, and it is the world’s largest exporter of sugar and ethanol.

The Brazilian and the global ethanol markets are growing rapidly, as governments around the world impose new requirements designed to increase the use of biofuels in cars, leading to increased demand for sugarcane-based ethanol.

However, many of the family-owned mills in Brazil are highly indebted and have been hit hard by the credit crunch and global economic crisis. They now need new capital to survive, triggering a round of consolidation in the sector.

Moema is chaired by Brazilian sugar tycoon Maurilio Biagi Filho, and other shareholders include the Junqueira Franco family, one of the main players in the Brazilian sugar industry.

In October 2009, the Biagis and the Junqueiras sold Santelisa Vale to French commodities company Louis Dreyfus, creating the world’s second largest sugar cane processor, behind Brazil’s Cosan.

Local press reports say that Cosan was one of the companies which Bunge beat out to the acquisition of Moema, which has left the US giant now poised to reap the benefits of the spike in ethanol demand in Brazil and worldwide.